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Financial sector bargaining power, aggregate growth and systemic risk

Author

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  • Emanuele Ciola

    () (Economics Department, Università Politecnica delle Marche, Ancona-Italy)

Abstract

During the last three decades Western economies have been characterized by an increasing role played by the financial sector. This process, called financialization, has been associated with lower economic growth, increased inequality and declining financial stability. In this article I develop a simple framework to study the effects of financialization on aggregate growth and systemic risk. The main driver of this mechanism is the bargaining power of intermediaries. Indeed, financial institutions, by absorbing a larger quota of income from their borrowers, can reduce the incentive for new entrepreneurs to enter in the market. Because of that, both the long-term potential growth rate and the overall stability of the system can be negatively affected by an overdeveloped financial sector.

Suggested Citation

  • Emanuele Ciola, 2018. "Financial sector bargaining power, aggregate growth and systemic risk," Working Papers 2018/11, Economics Department, Universitat Jaume I, Castellón (Spain).
  • Handle: RePEc:jau:wpaper:2018/11
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    Keywords

    financialization; entrepreneurship; firm financing; growth; systemic risk;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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